Are you thinking to reward and upgrade your family lifestyle with the purchase of a used yacht? This article will outline the various considerations and steps taken in the used yacht buying process.
Used yachts come in many flavors and styles
After deciding what type of used yacht will suit your yachting lifestyle, the buyer will want to devote time to check various yachts for sale by inspecting a list of candidates with the help of your broker and make a short list. Some folks are very analytical about this process, others know what they want as soon as they see it while most are somewhere in between – make sure the spouse is involved if you have one! Considerations to bear in mind are the engine types (repair-ability), hours and age of the equipment (with some newer upgrades), layout and interior furnishings, condition of the exterior, seaworthiness and so on.
South Florida is a unique hub with many used yachts for sale, as there is always a good variety of styles which can be shown in a short time and distance from each other (most sellers realize this – thus this area is sought out for serious sellers). Just as in real estate, appointments and timely notice are often very important, as every seller/listing broker for a used yachts have different rules for boat showings.
You will want to make an offer to the used yacht seller
When it is time to make an offer for a used yacht, many buyers wonder if there is a specific rule for formulating an offer. You should bear in mind that each seller is different and the most serious ones with the nicest yachts (the ones worth buying) often price their used yacht at the front of the market with slimmer margins. After all, there are yachts just for sale and then there are those which are seriously for sale. Listings often ‘mature’ with the sellers becoming more motivated when they realize that they will have to sell at what the market bears. A buyer should note that the used yacht seller pays any and all commissions.
Your yacht broker will be required to fill out a purchase and sales agreement for your review and signature. Suggestions to help ‘sell’ your offer include a deposit in place, a timely period of time to complete the deal (we normally suggest 30 days or less), no trade-ins and financing in place (or approved). AK Yachts uses a Purchase and Sales agreement which has been developed by the FYBA (Florida Yacht Brokers Association) with the cooperation of the finest maritime attorneys in the yachting industry. Buyers for larger yachts will likely seek a maritime attorney who specializes in yacht transactions – and who will often participate in the purchase agreement, escrow deposit and registration process of the used yacht.
Often, negotiating will take a few days or so to come to an agreement. At this point the Seller will sign the agreement with the expectation for a deposit to be implemented to act as ‘consideration’ for the deal. 10% is the normal deposit and can be placed in either the Buyer’s broker escrow account or for larger deposits, with an attorney who will act as escrow agent. Special note should be made for Broker escrow accounts – the State of Florida mandates and regulates yacht brokers very carefully and requires no co-mingling of escrow funds as well as ensuring that the yacht broker carries a surety bond. Buyers and Sellers should both realize that in the event of a dispute between themselves, the escrow agent will likely turn over the deposit to the appropriate court of jurisdiction for further resolution. However, this event very rarely happens as the buyer will either accept the vessel, whereby the deposit becomes non-refundable and is applied to the purchase price; or reject the vessel whereby the deposit is refunded and the agreement is terminated without further responsibility by the buyer or seller.
Now is the Time for Due Diligence
At this point, the yacht for sale is officially “off the market” and the seller cannot legally sell her to any other buyer until the terms of the agreement have been concluded. The buyer (with the broker’s help) is encouraged to perform due diligence in order to estimate any defects with the boat. Numerous companies which specialize in surveying yachts and their machinery are available, especially in South Florida. Frankly there are good ones, mediocre ones and not such good ones. Any experienced yacht broker will have a short list of surveyors which he feels will do a good job for the buyer for a particular type of yacht – as surveyors often have specialties in different used yachts and know what to look for right away. I would encourage engaging a surveyor who specializes in the type of yacht to be purchased –with a background of doing a thorough job and who can discuss defects intelligently with a buyer…over a surveyor who specializes in a completely different category of yachts.
Survey prices are typically around $20/foot for mid-sized hull surveys (plus the cost of hauling out the boat for bottom inspections) and go up from there for surveying larger yachts (as they take more time). Buyers should note that while a hull surveyor will be able to record observable machinery operation and apparent leaks – however if a buyer wants to be more thorough (as engines and gensets are such a major component and costly to repair), then a separate engine surveyor should be engage, one which specializes in the particular equipped brand of engine/genset package.
Prices for engine surveyors typically run in the $1,000-1,500 range including oil sampling. Once the survey is concluded, the surveyor(s) will provide written reports detailing the equipment and recommendations. Special note should be made that while a qualified surveyor will find most of the defects, the possibility exists that others may arise down the road, just as in any piece of complex machinery. A safe estimate is that a competent surveyor will be able to find at most 95% of the various deficiencies found in most yachts.
The survey is not only important to the buyer in order to establish the real condition of the yacht, but essential to potential insurance companies and necessary to bind the yacht with an insurance policy.
Armed with a good survey, the buyer determines that he can live with the defects (which will be hopefully minor) or seek some restitution on the purchase price for any substantial defects. This stage often requires fair-minded willingness on both parties. Once the buyer and seller agree to terms, the yacht is ‘accepted’ and the deposit ‘goes hard’ (or in other words, is non-refundable and applied to the purchase price).
Closing the Deal
Now the time comes to determine a variety of issues which are crucial to the closing of the yacht. An insurance agent should be engaged (see future article on insuring yachts) and a policy should be decided upon with a binding date to coincide with the closing date. A documentation company (or maritime attorney for larger yachts) should be engaged at this point. The agent will seek any liens on the yacht including those implemented by financial institutions which must be financially satisfied at closing. Bank loans complicate matters, and sufficient time must be allowed to pay them off and in turn have the lien released. However, this is common practice given the relatively ‘cheap’ money available for financing in these times. The agent (or attorney) will then prepare the proper documents needed for the transfer of ownership, which is often held in escrow until the funds are transferred to satisfaction of the owner/lien holders. There are a variety of ways to title a yacht (see article on yacht registrations/titling) and register a yacht depending on the buyer’s circumstances and residency.
The ‘closing’ is often handled long distance with wire transfers of funds. There was a time before the State of Florida legalized a sales tax cap of $18,000 for yacht sales (6% up to $300,000) whereby many yacht buyers chose to register and ‘flag’ the yacht offshore (in a country which offers the best maritime advantages), thus the yacht closing often took place in a foreign country (such as the Bahamas). This practice is still used (once again depending on buyer circumstances), however not as frequently.
Most experienced yacht buyers recognize the complexity of buying a yacht and rely on an experienced yacht broker to assist them…as do experienced sellers. It is quite rare to see transactions handled by individual buyers and sellers above 40’ due to the factors involved.
Once the yacht is officially closed, it is time for celebration and the beginning of a lifestyle which embraces family/friendship experiences, privacy and exploration. Let the good times begin!